RBI lowers 2012-13 growth forecast to 5.5 per cent

While the near-term risks to a bloating fiscal deficit have waned following the government's recent policies to stick to its fiscal deficit target of 5.3 per cent of GDP, sustainable fiscal consolidation would require cuts in subsidies.

Reuters | Last Updated: January 28, 2013 20:59 (IST)

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Mumbai:

The Reserve Bank of India (RBI) said a sustained commitment to contain fiscal and current account deficits was needed to create room for monetary easing, a day before it is widely expected to cut interest rates for the first time since April (full statement).

While the near-term risks to a bloating fiscal deficit have waned following the government's recent policies to stick to its fiscal deficit target of 5.3 per cent of GDP, sustainable fiscal consolidation would require cuts in subsidies.

"As reforms get executed, monetary policy could increasingly focus on growth revival," the Reserve Bank of India said in its quarterly report on macroeconomic and monetary developments on Monday.

The RBI also said its survey of professional forecasters had lowered the growth forecast for the 2012-13 fiscal year ending March to 5.5 per cent from 5.7 per cent previously. In October, the central bank lowered its own forecast for 2012-13 growth to 5.8 per cent from 6.5 per cent.

The survey also revised down the average wholesale price index inflation forecast to 7.5 per cent from 7.7 per cent. In October, the RBI had forecast that inflation would be running at 7.5 per cent by March, though December's rate of 7.18 per cent was the lowest in three years and better than the bank had expected.

The RBI is expected to reduce the policy repo rate by 25 basis points to 7.75 per cent in a policy review on Tuesday, making its first cut in nine months, economists polled by Reuters said earlier this month.